Home Loan Rates Drop After RBI Cut — Big Relief for Existing Borrowers!

Four significant public sector banks have changed their lending rates in response to the Reserve Bank of India's (RBI) recent move to lower the repo rate by 50 basis points, which reflects the central bank's monetary easing stance.

In the face of persistent difficulties, the action seeks to boost credit expansion and sustain economic activity. One of the first banks to lower its repo-linked lending rate (RLLR) by 50 basis points was Bank of Baroda, which did so on June 7, 2025, when it dropped to 8.15%.

Following suit, Punjab National Bank (PNB) maintained its Marginal Cost of Funds based Lending Rate (MCLR) at 8.35% but reduced their RLLR by 50 basis points to 8.35% as of June 9. Likewise, on June 6, Bank of India reduced its repo-based lending rate by 50 basis points to 8.35%.

UCO Bank reduced its MCLR by 10 basis points over a range of tenures, with the one-year MCLR now at 9%. It also reduced its RLLR by 50 basis points starting on June 9 and now stands at 8.30%.

Beginning on June 7, HDFC Bank, a prominent private sector lender, likewise lowered its MCLR by 10 basis points throughout all tenures. The overnight and one-month MCLR rates decreased to 8.9% as a result of this modification.

Bringing a Big Smile on the Face of Existing Borrowers

Floating-rate loans, which are required by RBI regulations to be adjusted in accordance with the benchmark repo rate, are immediately impacted by the RBI's repo rate drop. Lower interest rates will therefore be an immediate benefit for current borrowers with floating-rate loans.

However, because banks are anticipated to adjust the spreads they charge over the repo rate in order to remain profitable, new borrowers might not fully benefit from the rate decrease. For instance, Bank of Baroda's home loan rates for first-time borrowers now start at 8% following the change.

Due to this selective adjustment, current borrowers stand to benefit more than new ones, as many of them previously obtained loans at reasonable rates as a result of market competition. A number of public sector banks, including Union Bank of India, Bank of India, Bank of Maharashtra, and Central Bank of India, were providing home loans with interest rates as low as 7.85% for loans up to INR 30 lakh prior to the RBI rate drop.

Home loans were available at 7.90% from other lenders such as Canara Bank, Indian Bank, Indian Overseas Bank, and UCO Bank; Canara's rate applied to loans above INR 75 lakh, while others applied to smaller credit amounts.

FDs will Fetch Lesser Returns Now

Lenders are also anticipated to lower returns on fixed deposits (FDs) in order to maintain profitability in the face of rate cuts and increasing liquidity in the banking system. In the short term, this change might make fixed deposits less alluring to savers.

 While trying to promote economic growth through lower borrowing costs, the RBI's drop of the repo rate and the banks' subsequent adjustments show continuous efforts to balance credit availability, profitability, and competitive pressures in the Indian banking sector.